Amazon Dominates Wal-Mart and Best Buy in This Category

Amazon’s pricing advantage gives it a significant edge over Wal-Mart and Best Buy in regards to future sales potential.

Jan 10, 2014 at 11:17AM

Amazon.com (NASDAQ: AMZN) is dominating its peers, Wal-Mart Stores (NYSE:WMT) and Best Buy (NYSE:BBY), in one important area.

According to Profitero, a price intelligence firm, Amazon.com has approximately 2.5 million price changes per day. This gives Amazon enormous pricing advantages over Wal-Mart and Best Buy, which had a total of 52,956 and 54,633 price changes in all of November, respectively.

Most importantly, Profitero expects the number of price changes to escalate in the future, given the highly competitive retail environment where retailers are fighting for cautious consumers' dollars. Amazon's 2.5 million price changes per day is already 10 times higher than one year ago. Profitero is the leader global provider of online competitive pricing data, and Amazon takes advantage of that service. The following might be expected from a service company, but Profitero states that competitors must be using an online intelligence platform if they want to compete with Amazon. Despite it being somewhat of a sales pitch, you can't argue with this statement. For the record, Sam's Club (owned by Wal-Mart) is a Profitero customer.

Today's consumer wants the best price possible, and if Amazon relentlessly finds ways to offer the best prices for millions of its products, then it's going to attract more consumers. If Wal-Mart and Best Buy don't find a way to catch up soon, then Amazon will further expand its price-advantage lead.   

Industry trends might trump Amazon's price advantages
Amazon is the biggest online retailer in the world. Therefore, the following information provided by comScore might indicate softer Amazon sales than anticipated over the holiday shopping season. The word "might" is key here. While I would steer clear of Amazon due to its extremely high valuation (currently trading at 1,452 times earnings) and lack of consistent profitability (current profit margin of 0.20%, it's still an online juggernaut, and I would never bet against it. At least not at any time in the near future. 

According to comScore, the online holiday shopping season started out strong, with Thanksgiving Day sales jumping 21% to $766 million year over year. That total isn't large relative to other shopping holidays, but it was the first indicator as to how willing the consumer would be to spend. And it was a good sign. Black Friday also impressed, with online sales growing 15% to $1.2 billion. Cyber Monday saw an 18% boost to $1.7 billion. And Green Monday (Dec. 9, 2013) enjoyed a 10% bump to $1.4 billion. What's the bad news?

Online sales through Dec. 22, 2013 increased 10% to $42.8 billion. This might not sound like bad news, but comScore expected sales to increase at a 14% clip to $48.1 billion. This doesn't necessarily mean that Amazon's sales were weaker than expected. It simply means that online sales overall were weaker than expected, and you should take into consideration that Amazon.com is the largest online retailer. 

comScore did indicate that four of the best-performing categories (overall, not for Amazon specifically) included video games, apparel, electronics, and home and garden. However, it's also widely expected, as well as logical given the value-conscious and bargain-hunting consumer, that promotions led to increased sales. In a promotional retail environment, margins are hit, which weakens bottom-line performance.   

The Foolish takeaway
Amazon has a gargantuan price-advantage lead over its peers. Given the company's strong leadership, it will likely expand this lead going forward, attracting more consumers due to lower prices, which should lead to market-share gains. This, of course, would lead to increased sales. Despite online sales not meeting expectations through December 22nd, Foolish investing is about long-term trends.

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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